Leaving a part or your entire estate to a charity can reduce, and in some situations, eliminate your Inheritance Tax liability.

If you leave something to charity in your will, then it won’t count towards the total taxable value of your estate. This is called leaving a ‘charitable legacy’.

You can also cut the Inheritance Tax rate on the rest of your estate from 40% to 36%, if you leave at least 10% of your ‘net estate’ to a charity.

Here is an example of how this would work; let’s say that when you died:

  • your net estate is worth £425,000
  • in your will, you leave it all to your partner who lives with you
  • you have your full Inheritance Tax allowance (currently £325,000 for the 2019/20 tax year)
  • you aren’t married or in a civil partnership (so the spouse exemption is not available)
  • so, the ‘net estate’ is £100,000 (i.e. £425,000 minus £325,000). And there is Inheritance Tax to pay on £100,000 at a rate of 40%
  • so, your estate’s would have to pay a tax bill of £40,000 (i.e. 40% of £100,000).

If you want to reduce the tax bill, you can do this by leaving a legacy to a charity like AtaLoss.org. This works in the following way;

  • you’d leave your partner £415,000, and
  • £10,000 to the charity in your will (this is 10% of your ‘net value’ of £100,000)
  • the estate would then pay 36% on £90,000 worth of assets instead. This means that your estate would pay £32,400 in Inheritance Tax.

While this would mean your partner receives less when you die, in this example making a charitable legacy would shave off £7,600 from the Inheritance Tax bill.

This is worth considering if you’re keen to support a charity after your death.

The rules on how to work out what you can give away to charity to secure the lower tax rate aren’t always as straightforward as the simple illustration above.

So, it’s a good idea to get the advice of a solicitor or accountant who specialises in estate planning.

Learn more about cutting your Inheritance Tax bill in Gifts and exemptions from Inheritance Tax.

Visit GOV.UK to find more information on which part of your estate pays Inheritance Tax, calculators and relevant forms.

Reducing your tax bill before you die

If you donate to charity and pay tax, both you and the charity will benefit;

  • YOU get tax relief on charitable donations you make in any tax year if you pay above 20% tax.
  • THE CHARITY benefits not only from your donation but also by claiming GiftAid on your donation from HMRC. See the example below to understand how beneficial this can be.
  • If you donate land, property or shares to a charity, you will reduce your income tax and your capital gains tax.
Example: You donate £100 to charity - they claim Gift Aid to make your donation £125. You   
Your donations will qualify as long as they’re not more than 4 times what you have paid in tax in that tax year (6 April to 5 April).

How to ensure you and the charity benefit

If you are working and your employer runs a 'payroll giving scheme' you can arrange for a payment to be taken from your salary before tax is deducted. If you pay tax on your pension and this is deducted for you, you should notify HMRC of your charitable donations.

If you do your own tax submission, are self employed or there is no payroll giving, you and your preferred charity can still benefit. Make a one-off or regular gift aid donation and the charity can claim an additional 25% from HMRC. Make sure you have signed the charity's gift aid declaration, that you declare this on your tax form and you keep evidence of your donation.  

Giving to charity whilst you are alive, means you can reduce your inheritance liability and you will be able to enjoy seeing your money makes a difference!

Please check the Government website on tax and charity donations. Amounts vary depending on your circumstances and where you live.